Washington State Allocates Close to $3 Billion to Private Markets

The Washington State Investment Board (WSIB) and investment staff has committed almost $3 billion to new private market investments in the last few months, most of it to private equity funds, shows board material.

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The material, released after the board’s meeting on Sept. 20, shows that the biggest commitments were made to two funds: $750 million to TPG Capital Partners VIII, L.P., a global private equity fund being raised by TPG Capital, and $750 million to Hellman & Friedman Capital Partners IX, L.P., a transatlantic private equity fund being raised by Hellman & Friedman. The $102.5 billion investment fund has the second-largest investment in private equity in the United States at $20 billion. Only the $27 billion private equity program run by the California Public Employees’ Retirement System (CalPERS) is larger.In the case of the TPG Capital and Hellman & Friedman funds, the commitments were made by the board’s investment staff using delegated authority, the material shows. An analysis by CIO shows that private equity funds made up $2.718 billion of the $2.993 in total commitments made by the board and staff.Other investments made using delegated authority include an investment of $350 million in PAG Asia III LP, a private equity fund focused on the Asian markets; $200 million in TCV X, L.P., a technology-focused growth equity fund being raised by Technology Crossover Ventures; and an investment of up to €250 million (approximately US$293 million as of July 10, 2018) in Triton Fund V L.P., a buyout fund focused on the German-speaking, Nordic, and Benelux regions of Europe. At the Sept. 20 meeting, the board also directly approved the following investments, confirmed spokesman Chris Phillips.

Riverside Micro-Cap Fund V, L.P. An investment of $75 million in Riverside Micro-Cap Fund V, L.P., a North American buyout fund.

KKR European Fund V, L.P. An investment of$300 million in KKR European Fund V, L. P., a pan-European private equity fund.

IFC Core Farmland Fund, LP. An investment of $250 million, plus fees and expenses, in IFC Core Farmland Fund, LP, a $1.5 billion fund that will buy and lease large-acreage US farmland to large‐scale tenants. The fund will hold its investments through one or more subsidiaries that each qualify as a real estate investment trust, which will be open‐ended. The fund will seek to generate current income and modest capital growth over the long term by investing in a combination of row, specialty, and permanent farmland, diversified by US region, crop, and operator, and related assets including irrigation and crop storage.

Phillips also confirmed WSIB approved staff’s recommendation to employ two independent firms for portfolio transition services, as needed, BlackRock Institutional Trust Co. and Russell Investments Implementation Services. The firms will be authorized to conduct transition management services in support of the public equity investment team. Phillips noted that all WSIB investment decisions are subject to continuing due diligence and final negotiation of terms and conditions.

Tags: Pension, Private Equity, Washington State Investment Board

So the stock market took a dive Thursday when the 10-year Treasury yield rose, huh? Come on. What do you expect when the economy is booming and inflation, however fitfully, is nudging up?

The dominant fear is that rising interest rates, which the 10-year note is a benchmark for, will choke off economic growth and the current equity bull run. So the S&P 500 fell 1% for the day, as the 10-year poked above 3.2% for the first time in seven years. The Treasury bond, except for a brief period earlier this year, finally rose above 3.0% on September 5.

The market dip came after Federal Reserve Chairman Jerome Powell said the central bank would keep pushing up short-term rates, perhaps more than the so-called “neutral level,” where rates neither help nor hurt growth. (Note: Neither he nor anyone else is sure where that is.) And then there is the added geopolitical worry stemming from the harsh rhetoric between the US and China as they sink deeper into a trade war.

All of this interest rate sturm und drung is an over-reaction, according to Jamie Cox, managing partner for Harris Financial Group. Some investors are surprised, he said, but the “reason yields are rising are positive, not negative. Yields need to be higher—the economy is booming and money velocity has picked up.”

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Of course, the relationship between interest rates and stocks is relative. The big fear in corporate America is that companies will at some point have difficulty borrowing, which could stunt economic growth. But in the 1990s, the longest economic up-cycle in US history, the 10-year yield was between 8.25% and 6%, much higher than now. On the other hand, rates were trending down then, as they aren’t now.

Cox is among those who think that yields aren’t headed for the stratosphere, to say the least. “Yields are not going much higher,” he wrote in a note to clients, “so folks can calm down and stop with the hysteria about rates torpedoing the economy.”

What level of rates would constitute a clear and present danger? Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, wrote that he thinks a 3.5% to 4% 10-year Treasury would result in a large stock market selloff.

But he also thinks rates will “find a new equilibrium closer to our current levels and not spike much higher in the near term.” And when that happens, he went on, “the attention of equity investors should return to corporate earnings and economic strength in the broader US economy.”

Tags: 10-Year Treasury, Stock Market, Tariffs